Merger & Acquisitions, Antitrust Litigation & Investigations

$25 Billion Kroger/Albertsons Deal Fuels Antitrust Concerns

Proposed grocery chain merger prompts hearings on Capitol Hill.

grocery store fruit

Federal lawmakers troubled by The Kroger Co.’s impending acquisition of one of its chief competitors, The Albertson Cos., for $25 billion, will hold a hearing on the impact of the deal on the competitive landscape and consumers next month. Members of the U.S. Senate Judiciary Committee’s antitrust panel who recently announced the move are not the only skeptics, however. Senators Richard Blumenthal (D-CT) and Cory Booker (D-NJ) joined Sen. Amy Klobuchar (D-MN), who chairs the antitrust panel, in sharing trepidations about the deal. The trio did so in a letter to Federal Trade Commission (FTC) Chair Lina Khan, saying “This merger raises considerable antitrust concerns.” 

According to published reports, the FTC is also expected to examine the details of the transaction to make sure there are no antitrust law violations. 

Kroger and Albertsons announced their entry into a definitive merger agreement on Oct. 14. As approved by each company’s board of directors, the terms call for Kroger to acquire all outstanding shares of Albertsons common and preferred stock (on an as-converted basis) for about $34.10 per share.  

Kroger says it plans to “invest in lowering prices for customers and expects to reinvest approximately half a billion dollars of cost savings from synergies to reduce prices for customers.” Kroger also says it will invest $1.3 billion into Albertsons’ stores to “enhance the customer experience.”  Kroger claims the combined company will put $1 billion towards raising associate wages and comprehensive benefits. 

Kroger Chairman and CEO Rodney McMullen said the merger would be good for American families. “This merger advances our commitment to build a more equitable and sustainable food system by expanding our footprint into new geographies to serve more of America with fresh and affordable food and accelerates our position as a more compelling alternative to larger and non-union competitors,” he explained.  

Despite Kroger’s optimism, Sen. Klobuchar and her colleagues don’t want to leave things to chance. "Too many Americans are struggling to put food on the table,” they wrote in their letter to FTC Chair Khan. 

Collectively, Albertsons and Kroger employ more than 710,000 associates and operate nearly 5,000 stores. They also run 66 distribution centers, 52 manufacturing plants, nearly 4,000 pharmacies and more than 2,000 fuel centers. Joining forces makes the combined company accessible to customers not only online but at stores in the District of Columbia and all but two states, the companies say.  

According to data compiled by Statista, Kroger ranked fourth in U.S. food and grocery retail sales last year. Kroger had $138 billion in sales for 2021, behind Walmart with $393 billion, Amazon with $239 billion, and Costco with $141 billion. Albertsons was ninth overall with $72 billion in sales last year. The industry has been getting increasingly concentrated and dominated by stores that didn’t traditionally carry groceries. Unlike the early 1980s, Kroger and Albertsons no longer compete solely with other independent grocery stores. Kroger itself went on a shopping spree in the deregulated era of the Reagan administration. Things really started to change toward the end of the decade when Walmart entered the market with a “supercenter” in 1988, immediately crushing smaller independent stores on its way to becoming the colossus it is today. Other non-traditional grocery competitors include Walgreens, Target, CVS, and Sam’s Club, which is owned by Walmart.  

With increasing consolidation and the enormous success of multi-product retail powerhouses, it is especially important that federal antitrust enforcers pay close attention to this crucial industry. With the current rate of inflation, the prices of necessary household goods are already rising at an alarming rate. What is the antitrust law for if not to protect consumers from unfair market forces? We all know that with consolidation comes market power and with market power comes an increased risk of inflated prices. Fortunately, legislators are waving red flags. Now we will see how the enforcers react, especially given the Biden administration’s much-heralded pledge to fight anticompetitive mergers. 

Edited by Tom Hagy for MoginRubin LLP.  Photo by gemma on Unsplash.

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